Montenegro boosts revenue collection to drag down budget deficit

Montenegro boosts revenue collection to drag down budget deficit
By Denitsa Koseva in Sofia May 31, 2017

Montenegro’s budget deficit contracted by 26.1% y/y to €67.8mn in the first four months of 2017 as revenue grew, while spending remained almost unchanged, data from the finance ministry showed on May 31. It equalled 1.7% of the projected end-year GDP.

In its 2017 plan, the government set the end-year budget deficit at 6% of projected GDP. In 2016, the budget deficit equalled 3.5% of the full year GDP projection, down from 8% a year earlier. The Adriatic country has also drafted a set of measures aimed at cutting spending and increasing revenue, including lowering social payments and wages in the public sector by 25% and 9% respectively, and proposing a programme for tax debt reprogramming.

Total budget revenues increased 6% y/y to €422.7mn in January-April, backed by higher profit tax revenues and excises. Personal tax income went down 4% y/y to €29.4mn, while corporate tax income increased by 21.2% y/y to €34mn. VAT revenue moved up by 5.9% y/y to €146mn. Social contributions contracted 2.4% y/y to €121.7mn.

Total budget expenditures remained almost unchanged y/y at €490.4mn through April. Capital expenditures jumped 159% y/y to €15.9mn. They remained significantly below the €56.6mn initial target for the period.

After its latest mission to Montenegro, the International Monetary Fund (IMF) projected Montenegro’s general government debt at 82% of projected GDP by 2019 due to the construction of the Bar-Boljare motorway. This will expose the country’s economy to risks and limit the government’s ability to implement other important investments.

Due to the high cost of the motorway construction, the government can spend up to €150mn a year on other capital needs, which is equal to 3.5% of GDP. This sum is insufficient as the country needs to invest around €1.5bn - ten times that level - in the environmental area alone to meet the requirements of the European Union. Funding for other high-return investments in public infrastructure, health, education and social protection will also be very limited, according to the IMF.

Montenegro budget, €mn Jan-Apr'17   Jan-Apr'16 y/y, %
  Plan Execution Execution  
TOTAL REVENUE 428.2 422.7 398.9 6.0%
Tax revenue 268.7 276.3 230.2 20.0%
- Personal income tax 31.3 29.4 30.6 -4.0%
- Corporate tax on profit 29.1 34.0 28.0 21.2%
- VAT 144.7 146.0 137.9 5.9%
- Excise duties 53.5 56.8 46.4 22.3%
Social contributions 132.2 121.7 124.6 -2.4%
Duties 3.7 3.2 3.4 -6.8%
Fees 6.2 6.4 6.1 5.2%
Other revenue 12.0 9.7 9.9 -2.2%
TOTAL EXPENDITURE 574.2 490.4 490.6 0.0%
Current  expenditure 517.6 474.5 484.4 -2.0%
Current budget expenditure 267.1 241.0 233.7 3.1%
- Salaries 146.1 145.9 132.1 10.4%
- Other personal income 3.4 2.6 4.0 -35.1%
- Supplies 7.9 7.7 7.6 1.1%
- Services 14.1 15.9 15.8 0.9%
- Current maintenance 5.7 4.0 3.1 28.4%
- Interests 61.8 44.4 48.3 -8.1%
- Rent 3.1 2.6 3.1 -18.4%
- Subsidies 6.6 3.7 4.2 -11.2%
- Other expenditure 8.8 8.8 9.6 -8.2%
- Capital outflows of current budget 9.6 5.3 5.7 -7.6%
- Social security transfers 38.2 38.7 31.6 22.8%
- Transfers to institutions, individuals, NGO and public sector 54.6 41.6 49.9 -16.7%
Capital spending 56.6 15.9 6.1 159.0%
Loans and credits 0.8 0.6 1.0 -42.0%
Reserves 4.8 0.8 5.3 -84.7%
Repayment of debt 95.8 32.6 312.0 -89.5%
BUDGET BALANCE -146.0 -67.8 -91.7 -26.1%
Source: Montenegro's finance ministry        

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